Friday, March 30, 2007

Reader Question

Today I thought I’d answer some questions I received recently from a reader. The reader is in the process of learning about dividend investing and had asked the following questions:

Question: “How worthwhile is it to invest in US dividend-paying stocks seeing that, as Canadians, we do not benefit from the dividend tax credit available to Canadian stocks”

My Answer: Although we don’t receive a tax credit for dividends received from US companies I believe that for diversification purposes it’s necessary to own some American dividend paying companies. There really are no Canadian alternatives to companies such as JNJ. The same is true for large cap diversified industrials (ie- MMM) pharma (ie- PFE) and tech stocks (ie- MSFT). If there were world class Canadian alternatives of similar quality I would definitely own them. However, I don’t think good quality foreign companies should be excluded from a portfolio based on the fact that they don’t qualify for the dividend tax credit (even from a dividend growth portfolio).

My Answer: I can’t speak for Derek… only he can answer this one with 100% accuracy. However, I’m assuming Derek like most Canadian dividend investors would recommend sticking to Canadian dividends WHEN POSSIBLE. In my opinion it is not possible to build a properly diversified portfolio with only Canadian stocks, as I mentioned above there are a few sectors with no Canadian companies that meet my investment strategy and criteria. I’ve read Derek’s book and if I recall correctly he owns a number of US securities - BUD, JNJ, PFE and WMT.